Commercial Insurance and Business Interruption Coverage

Hurricane Dolly struck South Padre Island on July 23, 2008 with winds near 100 miles per hour, a four foot storm surge, and 12 to 15 inches of rain. Damage to structures on the Island and in Port Isabel, across the bridge on the Texas mainland, was pretty moderate and consisted of mostly damage to roofs. Power was knocked out to most residents and businesses for one to two weeks. Anything perishable, whether in a business or home, spoiled.

When a business goes through a catastrophic event such as a hurricane, tornado, or even a fire, it shuts down for a period of time. The length of time may be anywhere from a few days to weeks or months depending on the level of damage, access to materials, workers, and even getting power restored. Even when businesses reopen, it may take a while for customers to return which means even more time before revenue and profits to are at normal levels.

How would you survive if this happened to your business? Do you have the funds to pay your key employees wages until you’re able to reopen? How will you pay for outstanding orders, rent, or other bills that keep coming whether you’re open or closed? How long will it take for your revenue to return to normal once your business reopens?

Commercial property insurance covers damage to the premises and inventory, while liability coverage pays for anyone who’s hurt and sues for negligence. Neither, though, provide coverage for lost business and ongoing expenses when you’re shut down. Business interruption coverage is what’s needed to pay for those items.

Business interruption (or continuation) coverage can mean the difference between surviving the event and filing for bankruptcy when a disaster strikes. It covers items such as loss of income, making payroll, paying vendors, rent, etc. until the business is able to reopen. Some business continuation policies also cover relocation to temporary facilities until the original location is ready to open and profits that would have been earned if the business had not been shut down.

Business interruption coverage may be included with your current commercial insurance policy. Business owner policies, or BOPs, are commercial insurance policy packages containing both liability and business property coverage. Many of these policies automatically contain some level of business interruption coverage in them. Businesses that purchase a mono-line or non-packaged policy may have to pay for this coverage separately.

Does your policy cover an interruption in your business? Find out by reading your policy or talking with your agent. If it does cover this, review what it covers, what it doesn’t, and how much coverage it provides. If you don’t have business interruption coverage, then find out what it costs to add it and compare that to any cash reserves you may have. Your building doesn’t have to be leveled by a hurricane or fire for many businesses to be financially impacted in a major way.

What do you think? Share your questions, comments, and experiences if you’ve ever had to use this coverage with us in the comments section of our blog or on our Google + and Facebook pages. I’d love to hear from you!

Evie Wise
Evie Wise


Evie Wise
Evie Wise

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